Just like the Sensex questions which you thought would make you a fool, you got to ask stupid things about mutual funds, an indirect way of investing your money in shares, bonds and even gold.

Let me ask you about the choices you make in your daily life: When you catch a cold, do you take cetrizine tablet or you visit the doctor? If you want to reduce weight, do you start jogging 5 kilometers a day or you consult an expert dietician first? Do you book your holidays on your own or you rely on an expert travel agent?

You will choose the above options depending on the level of knowledge or information you have. Investing is also about making similar choice; you can research about companies and invest in their shares or bonds or you can rely on an expert like a mutual fund who hires expert managers to pick good shares or bonds.

Knowing that my Gruhinis will first rely on an expert to invest each rupee they save, here are the answers to the 10 stupid questions on funds that each one of you should know.

1. What is a mutual fund?

It’s a well regulated financial instrument whereby you invest money; a professional fund management company (it launches the fund) invests that money (collected from all of us) in number of stocks or bonds to create a portfolio. Your money grows or falls in value based on the value of shares or bonds in that portfolio. There is a group of trustees who keep an eye on the company and its fund managers. The companies have to follow stringent rules about how they invest your money.

2. Do I need to a rich husband or a bank balance with lots of zeroes?

No, you can start a fund account with minimum investment as low as Rs 500.

3. Can I withdraw anytime if I get an urge to splurge?

I thought someone really wanted her money to work hard! Yes, you can withdraw if the spender in you overpowers the saver in you! Usually a fund allows you to withdraw money on a working day. But some funds can levy a penalty (1-2.50%) if you withdraw before a certain period (60 days, or 3 years in case of funds that give tax concession)

4. Apart from money, what else do I need to have to invest?

A permanent account number (PAN) and a bank account is a must.

5. Is my money safe? I mean do I stand a chance of losing my savings?

Mutual funds cannot guarantee that you will get money back. If you invest Rs 100, you may get Rs 101, Rs 80 or Rs 150. So instead of spending on that stilettos or sling bag which will be outdated in six months, why not take a risk of seeing your money go upto Rs 150? As mentioned earlier, the strict rules ensure that funds don’t run away with your money.

About Rachna Monga Koppikar

Rachna aka your Great Gruhini is a finance writer with over a decade's experience in writing about personal finance matters with leading financial publications of India. As she studies to be a certified financial planner, she is also on a mission to make every woman a money savvy individual.
So shed your inhibitions. Get over your money worries with The Great Gruhini. Write to her at thegreatgruhini@gmail.com